Onity Group Inc. · NYSE:ONIT
Onity — Ocwen Financial — Q4 2020 Earnings Presentation
33 slides from Onity's earnings presentation, Feb 10, 2021
Slide 1: Business Update Fourth Quarter 2020
Business Update Fourth Quarter 2020 February 10, 2021 © 2021 Ocwen Financial Corporation. All rights reserved.
Slide 2: Forward-Looking Statements and Non-GAAP Financial Measures
FORWARD-LOOKING STATEMENTS objectives and comply with our debt agreements, including the NON-GAAP FINANCIAL MEASURES This presentation contains forward-looking statements within financial and other covenants contained in them; increased This presentation contains certain non-GAAP financial the meani
Slide 3: Today's Ocwen is stronger, more efficient and aligned with future market opportunities
Today’s Ocwen is stronger, more efficient and with capabilities aligned with future market opportunities Transformed into a diversified and Servicing platform positioned to perform 1 balanced originator and servicer 5 through cycles with diverse portfolio and special servicing capabilities Strategic
Slide 4: Ocwen is a balanced and diversified mortgage originator and servicer
Ocwen is a balanced and diversified mortgage originator and servicer Balanced and Diversified Positioned to Benefit from Macro Business Model Industry Trends Diversified, sustainable originations to balance earnings • Fed committed to record low interest rates driving and drive servicing portfolio g
Slide 5: Our mission is creating positive outcomes for homeowners, communities and investors
Our mission is creating positive outcomes for homeowners, communities and investors using the Ocwen Cares approach HOMEOWNERS COMMUNITIES INVESTORS • 180,000+ forbearance • Community Advisory • Industry leading total plans for consumers Council delinquency cycle times • 40 borrower virtual • Support
Slide 6: Executed agreement with Oaktree for an additional $250 million investment
Executed agreement with Oaktree for an additional $250 million investment after rigorous strategic review process(a) Strategic Review Process Expected Outcome • Process to explore strategic options announced in • Oaktree providing $250 million in incremental May 2020 capital to Ocwen through OFC Hol
Slide 7: Oaktree alliance would provide $460+ million in capital
Oaktree alliance would provide $460+ million in capital to accelerate value creation and reduce risk OFC HoldCo Notes MSR Asset Vehicle (MAV) • Bespoke financing structured to provide • MSR acquisition joint venture; Oaktree will own incremental equity to PHH (licensed operating 85% and Ocwen will o
Slide 8: Oaktree alliance would enable up to $78 million in annualized pre-tax income benefit
Oaktree alliance would enable up to $78 million in annualized pre-tax income benefit from full deployment of Oaktree $460+ million investment Potential EPS Accretion(a)(b)(c)(d)(e)(f) • Enables up to $195 billion in additional ~$10.00 - origination volume over the next 2 years 65+% $12.10 ~$4.80 – $
Slide 9: Substantially improved business fundamentals and financial performance
Substantially improved business fundamentals and financial performance; 4Q reflects continued strong progress on growth and productivity Improving profitability(a) Strong flow originations growth ($ millions) $61 ($ billions) $54 12 .0 Third Party Originations(c) 10.0 10 .0 Retail 0.5 8.0 6.7 6.0 0.
Slide 10: Delivered record originations results in 4Q
Delivered record originations results in 4Q Origination volume continues to outpace recent periods Originations team executing very well Servicing additions (excl. bulk) Servicing additions (bulk) $30.1 • Correspondent volume of $2.6B; increased Subservicing additions volume 34% QoQ 5.0 • Flow and C
Slide 11: Servicing continues to deliver strong operating performance
Servicing continues to deliver strong operating performance Operational Execution Avg Speed to Answer (min) Operations Effectiveness 2.9 3.0 GNMA 1st • Superior customer 2.7 Legal 98.3% 2.3 responsiveness Due Date • Best-in-class claims losses 0.7 0.7 GSE Claim Acceptance 99.3% 2Q20 3Q20 4Q20 Rate O
Slide 12: 2021 Market Outlook
2021 Market Outlook Industry Forecasts Strong for 2021 Borrower FB Plans Expiring After record 2020, 16.7M remain eligible for refinance (a) Percent of • ~1.8M homeowners continue to Purchase sustained by ~45M millennials maturing as buyers Loans on FB be on FB plans Ref inance ($T) $4.0 8.77% • ~85
Slide 13: Focused on five operating objectives to achieve profitability goals
Focused on five operating objectives to achieve profitability goals OBJECTIVES TARGET $100B+ in total volume with ~40/60 mix of Accelerate growth 1 owned servicing and subservicing Strengthen recapture Achieve and maintain 30% recapture rate by performance 2 second half of 2021 Improve cost Maintain
Slide 14: Roadmap to accelerate growth through client, product and channel expansion
1 Roadmap to accelerate growth trajectory through client, product and channel expansion CL and Flow Seller Base • Achieve 450+ Correspondent Lending and Flow Co- issue clients by year-end 2021 ~40% CLIENT • Grow performing and special subservicing BASE 450+ • Fuel subservicing and flow seller growth
Slide 15: Strengthen recapture performance through investment in people, process and technology
2 Strengthen recapture performance through continued investment in people, process and technology Staffing - % Increase • Continued investment in staffing to ~40% address capacity constraints Loan Officers STAFFING Total increase ~50% Processors of 40%+ • Expect to increase operations staff by Under
Slide 16: Actions to improve cost leadership and maintain high quality operational execution
Actions to improve cost leadership position and maintain high quality operational execution 3 Improve our cost leadership Servicing Operating Cost • Execute continuous cost improvement roadmap to improve cost leadership from top quartile to top decile performance 15 bps 13 bps 11 bps • Improve cost
Slide 17: Actions to expand servicing revenue opportunities
5 Actions to expand servicing revenue opportunities • Preparing for surge of GNMA FB plan expirations enabling redelivery of GINNIE EBOs reperforming loans into new GNMA pools • Actively tracking RMBS call right opportunities; expect ~$540M will be eligible to call in 2021 CALL RIGHTS • Execution su
Slide 18: Financial Updates
FINANCIAL UPDATES Ocwen Financial Corporation 18
Slide 19: Fifth consecutive quarter of positive adjusted pre-tax income
Fifth consecutive quarter of positive adjusted pre-tax income ($ millions, except Book Value per Share) Q3’20 Q4’20 VPQ$ Key Results Revenues(a) $180 $172 $(9) • Revenue decrease driven by lower NRZ Servicing 125 116 (8) subservicing fees on account of UPB transfer and Originations 54 54 0 runof
Slide 20: Balanced business model is operating well, replenishing servicing portfolio
Our balanced business model is operating well, originations growth and profitability replenishing servicing portfolio and offsetting runoff impact Originations Highlights Servicing Highlights Origination Volume ($B) Adjusted PTI ($M)(a) Servicing UPB ($B) Adjusted PTI ($M) (a) Servicing Servicing an
Slide 21: COVID-19 forbearance tracking favorable to forecast
COVID-19 forbearance (FB) tracking favorable to forecast Total loans on FB declining, generally consistent Owned servicing FB plan levels favorable to other with industry, ~77,000 active FB plans(a) non-bank servicers # of Active Open FB Plans ('000s) % of Portfolio Volume on FB by Investor Type Tot
Slide 22: Significant investments in origination in 4Q; liquidity supports investments
Significant investments in origination in 4Q; liquidity position supports investments and servicing advances continue to track favorably Available liquidity in Q4 invested in bulk MSR market opportunities and originations ($ millions) $190M MSR cash investment • $98M net cash consumption in Q4 for -
Slide 23: Earnings and profitability framework for 2021
Earnings and profitability framework for 2021 Dec 2021 Target Objectives Originations Servicing Corporate (a) Total originations revenue (GOS, origination fees 450+ CL and Qtrly MSR vol Industry vol. Accelerate ~17% prepays and interest income)/(orig. vol. ex. bulk and S/S). flow sellers ~$10B at 65
Slide 24: Wrap Up
Wrap Up Transformed into a diversified and Servicing platform positioned to perform 1 balanced originator and servicer 5 through cycles with diverse portfolio and special servicing capabilities Strategic alliance with Oaktree Capital to Near-term and long-term market 2 accelerate growth and support
Slide 25: Appendix
Appendix • Oaktree Accretion Assumptions and Calculations • Notes Regarding Non-GAAP Financial Measures • Expense Notables • Income Statement Notables • Expense Notables by Segment • Income Statement Notables by Segment • MSR Valuation Assumptions Ocwen Financial Corporation 25
Slide 26: Important Note on Oaktree Accretion Assumptions and Calculations
Important Note on Oaktree Accretion Assumptions and Calculations Potential EPS Accretion, Potential Value Accretion and BVPS dilution shown on the slide that follows are based on management projections and preliminary forecasted estimates, taking into consideration certain market data and analysis.
Slide 27: Oaktree Accretion Assumptions and Calculations
Oaktree Accretion Assumptions and Calculations Metric OFC HoldCo Notes MAV Combined Shares Outstanding (M) 8.69 8.69 8.69 Book Equity ($M) $414 $414 $414 Book Value Per Share $47.65 $47.65 $47.65 Warrant Percent 12.0% 3.0% 15.0% Warrant Execution Price $26.82 $24.31 $26.32 Number of New Shares (M) 1
Slide 28: Note Regarding Adjustments to GAAP Expenses and Pre-tax Income (Loss)
Note Regarding Adjustments to GAAP Expenses and Pre-tax Income (Loss) In the follow ing slides, w e present supplemental information (including reconciliations) relating to certain illustrative adjustments to GAA P expenses, and pre-tax income (loss). We believe this information is instructive as an
Slide 29: Expense Notables
Expense Notables (c) $ Millions Q2'18 Q4'20 OCN + PHH OCN OCN (Annualized) (Annualized) I Expenses (as reported)(a) 1,107 (b) II Reclassifications 5 III Deduction of MSR valuation adjustments, net (132) IV Operating Expenses (I+II+III) 979 144 577 Adjustments for Notables Re-engineering costs (32) (
Slide 30: Income Statement Notables
Income Statement Notables (c) $ Millions Q2'18 Q4'20 OCN + PHH OCN OCN (Annualized) (Annualized) (a) I Reported Pre-Tax Income / (Loss) (253) (1) (3) Adjustments for Notables Expense Notables (from prior slide) 63 16 Non-Agency MSR FV Change (b) (20) (6) (b) Agency MSR FV Change, net of macro hedge
Slide 31: Expense Notables by Segment
Expense Notables by Segment $ Millions Q3'20 Q4'20 (c) Servicing Originations Servicing Originations I Operating Expenses 85 30 76 36 Adjustments for Notables Re-engineering costs (1) (1) (1) (1) Significant legal and regulatory settlement expenses - - - - CFPB & state regulatory defense & escrow an
Slide 32: Income Statement Notables by Segment
Income Statement Notables by Segment $ Millions Q3'20 Q4'20 (c) Servicing Originations Servicing Originations I Reported Pre-Tax Income / (Loss) (33) 36 (1) 33 Adjustments for Notables Expense Notables (from prior table) 3 1 3 2 (a) Non-Agency MSR FV Change (14) - (6) - (a) Agency MSR FV Change, net
Slide 33: MSR Valuation Assumptions – Owned MSRs
MSR Valuation Assumptions – Owned MSRs ($ in millions) At 12/31/2020 Non- Total FN/ FH FHA/ VA Agency Retained (in $ millions) UPB 54,988 13,070 21,595 89,653 Loan Count (000s) 237 102 130 468 Fair Value 509 75 144 728 Fair Value (% of UPB) 0.93% 0.57% 0.67% 0.81% Collateral Metrics: Weighted Averag